LIVE MARKETS-A little breather from U.S. growth

11 Min Read

Oct 26 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Helen Reid. Reach her on Messenger to
share your thoughts on market moves: helen.reid.thomsonreuters.com@reuters.net
A LITTLE BREATHER FROM U.S. GROWTH (1320 GMT)
This could have been a major turning point for the worse if U.S. GDP data had been weaker
than expected but on the contrary it turned out to be better.
The good news hasn't changed the sour mood on the continent's trading floors but has
nonetheless taken about 20 basis points off the downward trend on the STOXX 600.
U.S. futures have also reduced losses but so far this clearly ain't no game changer:
U.S. economic growth slows less than expected in third quarter
(Julien Ponthus)
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EARNINGS SEASON: WHAT'S THE DAMAGE? (1235 GMT)
We noted earlier that analysts have been downgrading their earnings estimates for MSCI
Europe at their fastest pace since Feb 2016 - which doesn't bode well for the rest of the
earnings season.
It looks like companies are going to have to really impress in order to drive share price
moves, and Goldman Sachs strategists note investors have been feeling this season is a "false
start". Earnings have been revised down for all sectors apart from commodities (see below).
Here are some of the negatives that have been keeping investors on the sidelines, wary of
buying the dip:
* The average earnings surprise has been +0.1 percent equal-weighted - below the historical
average of +1.5% - and ex-Financials the market surprised negatively -0.2%
* Less than 20 percent of companies reported earnings 5 percent or more above market
consensus
* October is the third worst-performing month since the global financial crisis
* Those that disappointed have been punished. GS calculates on average companies that
reported
below-expectations earnings fell 4.7% relative to their sector
Interestingly, the strategists reckon large misses early in the season may encourage
investors to anticipate disappointments in the rest of the sector, leading to potentially
smoother reactions later on.
So perhaps the worst of the damage has already been done - only time will tell.
(Helen Reid)
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NOT QUITE PANIC LEVELS YET - BUT CLOSE (1128 GMT)
From BAML's "The Thundering Word", interesting data on how deep in bear territory global
stocks are.
Their key finding is that stocks are oversold, "close to prior panic levels" but crucially
not there just yet:
(Marc Jones and Julien Ponthus)
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THE WORST MONTH SINCE 2011? (1113 GMT)
Just a short while ago, European shares were set for their worst month since August 2015,
now it's looking more like August 2011. We're currently down 8.7 percent on the month, Aug 2015
saw an 8.4 percent fall, and Aug 2011 was a 10.5 percent drawdown.
In the grander scheme of things there's only been 14 months as bad as October 2018 (so far)
in the last 30 years - as you can see below in the monthly chart.
Which means we're in the top 4 percent as far as bad months go!
(Julien Ponthus)
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CANNABIS GETS YOU HIGH, EVEN IN A SELL-OFF (1017 GMT)
Roughly 90 percent of the STOXX 600 is in negative territory but that hasn't spoiled Danish
cannabis firm StenoCare's stock market debut.
Its shares have more than tripled in value this morning, worth remembering next time a
company decides to cancel an IPO and lamely blames it on "adverse market conditions".
It's been said for a while now that cannabis could be the new blockchain in terms of
stoking a market frenzy and it seems the craze is spreading.
Pot stocks are hot and not only in Canada, which just became the first Group of Seven nation
to legalize recreational cannabis.
We've already used this illustration (taken from the twitter account of GAM fund manager
Paul McNamaraon) but hey, a second time can't hurt:
Pot is hot! Shares in Danish cannabis firm StenoCare surge on debut
LIVE MARKETS-Is cannabis the new blockchain? nL8N1WS4AE]
(Julien Ponthus and Ritvik Carvalho)
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OPENING SNAPSHOT: SEA OF RED ON TECH TREMORS, EARNINGS ANXIETY (0800 GMT)
The STOXX is set for its worst month since Aug 2015 as it sinks down 1.1 percent this
morning in a broad selloff after results misses from Amazon and Alphabet renewed anxiety about
how fragile this tech-fuelled bull market might turn out to be.
Results-wise it's a triptych of terror for European investors: So far three main negative
trends have emerged from company results: higher raw material and wage costs, the impact of
tariffs, and a slowdown in China.
No surprises then that analysts are downgrading their MSCI Europe earning estimates at the
fastest pace since Feb 2016, according to Refinitiv IBES data.
Car parts maker Valeo follows in the footsteps of auto peers with a warning on tougher
European emissions rules and slowing China sales - driving its shares down 17 percent while peer
Faurecia falls 6.9 percent.
Spanish paper and packaging maker Viscofan has only just started trading and plunged as much
as 22.5 percent after warning it would miss its full-year guidance.
(Helen Reid)
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WHAT'S ON THE RADAR: STOCKS TO TUMBLE, VALEO SINKS ON PROFIT WARNING (0653 GMT)
It looked set to be a day of heavy losses for equity investors with European futures down
sharply – 0.6 to 0.9 percent - after U.S. futures tumbled following results from Amazon and
Alphabet– prompting renewed concerns about the dominance of tech in this market cycle.
Car parts maker Valeo could be the biggest faller of the day, indicated down 10 to 15
percent after its results missed estimates by 22 percent and it slashed guidance for next year
by 11 percent. The warnings echoed Daimler’s and others in the auto sector flagging disruption
from tougher European emissions tests and slower sales in China, and the sector could be bruised
as a result.
Stronger results from British Airways owner IAG could help the travel & leisure sector which
has been under pressure with airlines warning of fuel costs rising.
With some analysts citing a report Brexit talks are in deadlock, Britain’s FTSE 100 will be
a focus although sterling was unchanged on the day. Lender RBS said it had taken a 100 million
pound impairment provision to account for greater economic uncertainty, the first concrete sign
Brexit is clouding the outlook for banks.
Investors will also be digesting the impact on healthcare companies, including Roche and
Novartis, of Trump's plan announced overnight to create a global pricing index for prescription
drugs based on lower prices paid in other countries.
Of the Europe-listed pharma names, Roche, Ipsen, Grifols and UCB have the biggest exposure
to the U.S. Medicare Part B according to Goldman Sachs. One trading desk saw Roche falling 2
percent on the news.
(Helen Reid)
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FUTURES DOWN SHARPLY AS TECH SELLOFF, BREXIT DEADLOCK SAP RISK APPETITE (0617 GMT)
Futures have opened sharply lower, suggesting it's going to be a pretty heavy fall for
European stocks after U.S. stock futures tumbled overnight on Amazon and Alphabet results.
A Bloomberg report that U.K. Prime Minister Theresa May’s Cabinet is not close enough to
agreeing a way forward for top level Brexit negotiations to resume is likely to add further
uncertainty to UK markets.
(Helen Reid)
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EARLY MORNING HEADLINES ROUND-UP: RYANAIR, VALEO, LAFARGEHOLCIM (0610 GMT)
A profit warning from French auto parts maker Valeo - its second in three months -
will underscore mounting concerns in the automotive sector about the impact of tougher European
emissions tests and slowing sales growth in top market China.
Ryanair may get a lift after signing a preliminary contract deal with Belgian cabin crew and
pilots as the budget airline aims to avert further strikes that have grounded planes and
disrupted travel for thousands of customers.
Brace for action in the construction sector after LafargeHolcim, the world's largest cement
maker, became the latest building materials company to warn of higher costs. The company
reported consenus-busting Q3 earnings, but lowered its profit expectations due to rising fuel
and raw materials costs.
Last week German rival HeidelbergCement trimmed its profit guidance, sending its shares down
as much as 10 percent to a near four-year low.
In the chemicals sector, BASF posted slightly lower-than-expected quarterly profits and
reiterated its full year guidance.
Aside from the onslaught of earnings, there is some IPO activity with shares in Danish
cannabis oil firm StenoCare debuting, aiming to take advantage of a recent surge in investor
interest in a substance that is still banned or restricted in many markets.
Spanish bank Ibercaja has been in touch with advisers on a potential IPO, sources said, part
of a legal requirement to protect the financial health of Spanish savings banks.
Volvo Cars Q3 income falls due to launch costs, higher tariffs
Spain's Caixabank Q3 net profit down 27.6 pct due to Repsol sale
Asset manager Amundi reports higher Q3 profits
Signify beats expectations with 8 pct rise in Q3 core profit
UBS CEO Ermotti won't rule out M&A, says options are limited
Volkswagen deals ready truck business Traton for stock market listing
Brewer Ambev squeezed by Brazil competition, Argentina inflation
AIG receives UK approval for Brexit restructure
Freenet open to offers for its $1 bln stake in Sunrise - CEO
NordLB stake sale sparks merger talks among German public sector banks - sources
Lufthansa eyes divestments of non-core businesses - handelsblatt newspaper
(Josephine Mason)
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EUROPEAN MARKETS HEADING SOUTH AGAIN (0525 GMT)
Any hope of a sustained recovery after yesterday's modest recovery across European markets
will be dashed, with the market's facing further pressure at the open today, taking their lead
from Asian and U.S. markets overnight.
FTSE 100 is expected to open 64 points lower at 6,940, DAX is expected to open 117 points
down at 11,190 and CAC 40 is expected to open 62 points lower at 4,970, according to David
Madden, market analyst at CMC Markets UK.
(Josephine Mason)
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